Back in college, I was invited by a friend to an event in an MLM company, also known as network marketing, direct selling, or pyramid selling companies. The talk was inspiring and the business opportunity presented seemed promising. In addition, the friend that invited me told me how much he had already made, so I was in. Like many who have joined an MLM (multilevel marketing) company with the hopes of earning millions, I never completed a referral or sold a single product. Sales just wasn’t for me. Or maybe the product just wasn’t that good?
Lately, I feel like more and more insurance agents sound like networking people. I have nothing against insurance. Most, if not all will need some kind of insurance at one point in their lives. It’s the below 4 similarities with MLM companies that bother me:
1. Both are sales driven companies
The companies rely on non-salaried staff to sell products directly. Whether it’s an insurance policy or a business package of a networking group, the staff needs to sell in order to earn from commissions.
For people in MLM companies, they will need to sell products or refer 2-3 individuals to get their money back.
Insurance companies may require their agents to sell around 3 insurance policy sales a month, or they will be fired.
This may likely lead to pushy agents who focus more on closing the sale at all costs. Especially in a country where people find it hard to say “NO” in fear of hurting one’s feelings, this may easily be a huge problem.
2. Both take advantage of people’s lack of financial education
MLM companies target the lower class and less educated simply because no formal education is required. All they require is for them to convince their “network” to join the company – and they can be their own boss and be independent. MLM companies like to focus on the empowerment of individuals, especially women, and glorify the earnings of the people on top of the pyramid. People will then tend to focus on leaders with huge downlines , rather than focus on analyzing the business model and its flawed marketing strategy.
Insurance on the other hand, is such a boring topic. Most people with insurance cannot answer what kind of investment fund their policy has (if VUL), or the face amount of their policy. Even if something happens to the insured, the beneficiaries may not even know what to do in order to receive the claim. What’s worse, there are people who don’t even know they are beneficiaries! According to this article, an estimated $1Bn insurance benefits goes unlaimed in the U.S. every year.
3. Both use fear and greed to convince people to buy
Most people fear their health will deteriorate if they don’t purchase a certain supplement or gadget. Some may appear gullible, but I think the fear of cancer or other terminal illnesses takes control and motivates them to buy the product. This, combined with the desire to potentially earn millions through downlines or referrals are primarily why people join networking companies.
In insurance, an agent may convince you to get an insurance plan at an early age since it is cheaper. Or they could be frank and say that your parents or family will need it in the event something happens to you. While those are both valid points, one may decide based solely on fear or other emotions, and not necessarily based on one’s goals or budget.
4. Both are relatively expensive
Networking companies will contend that their products are expensive because they are superior in quality. This may be true, but there will always be cheaper products out there that are also function the same. Also, you generally start by purchasing a bunch of products, which are marketed to be part of the business package, forcing you to use them or sell them.
The most popular product sold by insurance agents is the VUL, which combines life insurance with an investment fund. A cheaper alternative, however, would be term insurance – life insurance for a specific period. This allows you to invest what you would have spent on higher premiums. Insurance, after all, provides protection first and foremost. Its goal is not to grow your money, but to protect you from future medical expenses or provide sufficient living expenses for your dependents in the event of your demise.
To reiterate, I don’t think insurance companies should have the same negative reputation as MLM companies. I simply described the similarities as dangerous because one may make an uninformed decision based solely on fear or ignorance, not knowing that there are cheaper alternatives. Personally, I wish I added health coverage/riders to my insurance policy when I got one, which I wrote about briefly here. I may get another policy with extensive health coverage, but our cash flow is a little tight. And no, it’s not because of my milk tea/iced coffee addiction. 🙂 As for now, my future medical costs will be shouldered by my stocks portfolio and other investments (which STILL isn’t doing well now).